Germany’s growing university population is fuelling additional demand for student housing. Universities currently offer around 515,000 first-year places each year and market analysis firm BulwienGesa is expecting the number to rise over the next few years as more young people opt for higher education in order to improve their chances of employment.
In addition, the reduced study time that resulted from the division of the university system into bachelor and masters studies, means that students can enter the employment market sooner, making higher education more attractive still.
Furthermore, the suspension of compulsory military service in Germany as well as the reduction of the school curriculum by one year means that German universities are already experiencing an growing influx of students.
Main college towns
Berlin, Munich, Cologne and Hamburg are the main student cities. Germany’s capital, Berlin, is top of the list, accounting for 126,000 students, while Munich has 85,000 students.
In that context it is hardly surprising that investors are busy developing student housing projects. “There is in particular a shortage of student apartment housing,” says Felix Embacher, head of projects at BulwienGesa in Munich.
The firm’s research indicates that about 26% of students live in shared rented flats and 10% live at home, but only 17% live in singly occupied apartments. Several new projects by mostly local investors are now looking to fill the gap in the market for apartments for students which is also, according to BulwienGesa, the most preferred living situation.
One current project was initiated by Munich-based companies LSR Europe, a subsidiary of the listed Russian construction company LSR Group, and developer Grundkontor Projekt. The two have teamed up to realise the MUC Campus V project, which includes the development of 346 student flats in Munich’s Baierbrunnerstrasse.
The foundation stone was laid at the beginning of July 2011. Each apartment will have an en-suite bathroom and a small kitchen unit. The building will also offer communal areas such as a TV room, gymnasium, kitchen and laundry room. The development is expected to be completed by the end of September.
Grundkontor Projekt has been active in the student accommodation market for some time and MUC Campus V is its fifth student housing project.
Grundkontor Projekt also manages the Student Village No1 closed-end fund, which owns the 320-unit student accommodation building Campus Viva Bremen. The firm is also preparing the development of a similar building in Heidelberg.
Another closed-end fund focused on investment in student apartments is MPC Capital’s MPC Deutschland 11. The fund is invested in five student apartment properties in the Munich, Greifswald, Frankfurt and Karlsruhe. MPC Deutschland 11 has an investment volume of about €69m, of which €34.5m is debt capital, and has a life span of 12 years.
Munich’s student housing manager and investor International Campus is another investor developing student apartments. It recently embarked on a joint venture with Berlin’s Gädeke & Sons Group. The first student accommodation developed under the brand name “The Fizz” will be built in Bayreuth and Berlin and are expected to be finished in 2013.
In Berlin-Mitte the joint venture plans to develop 220 student apartments with an average size of 21 m2 while 320 student apartments will be built in Bayreuth. The investment volume for both properties is €35m. The overall rent for a student apartment in Bayreuth is €395 and in Berlin €495 per month. Construction is scheduled to start in summer 2012.
The scheme is based on a student housing pilot project in Bremen and International Campus is looking to acquire further sites for student housing developments.
Further north, Hamburg-based shipping and real estate investor Fondshaus Hamburg has launched the closed-end FHH Immobilien 12 – Studieren & Wohnen real estate fund, which focuses on investments in the student housing market. It has a total investment volume of €29.6m, of which 62% (€18.4m) will be raised through private investors. From 2014, the fund manager expects to be making payouts of 5.5% pa. The fund will expire in 2024 and provide payouts from rental proceeds of 64.5% during its life span and a final payout of 102.7% from the sale of the properties.
Earlier this year, Fondshaus Hamburg acquired two student apartment developments in Hamburg and Frankfurt. These are expected to be completed by October 2012 and November 2013 respectively and will be added to the fund’s portfolio.
Higher-budget offerings
Current developments focus on students with higher budgets, as average rents for a self-contained student apartment are between €315 and €600 per month. “All student housing developments I have seen are at the higher end,” says Embacher. However according to research, only about 10% of German students have a sufficient budget for that level of accommodation, so investors who own them also target young professionals. For example, Grundkontor’s Campus Viva Bremen apartments are also available for employees of companies located in the nearby high-tech office facility Technologie Park.
Although only 10% of students in Germany’s largest university towns are able to afford high-end apartments, the student accommodation market is still a lucrative market for investors that has only a few players. Embacher is confident that there is sufficient demand for the newly built developments.
His advice, though, is that investors should analyse carefully what they pay for the development site to ensure that an investment is profitable.
